How Misguided Value Chain Sourcing Decisions Can Destroy a Medical Device Company

It is well recognized that incorrect configurations of value chains create financial hardship for organizations in all types in all industries. But never in history has it been more important to correctly configure healthcare value chains than now. Now that the Affordable Care Act dust is beginning to settle, what also is beginning to settle, are the ramifications of both the act, and organizations’ reactions to it. Healthcare spending in the United States is estimated to be near 20 percent of our gross domestic product.  The Affordable Care Act has created both positive and negative outcomes for all Americans with far-reaching ramifications globally.

Individuals with pre-existing conditions seeking healthcare coverage praise the elimination of 30 pages of questions and the expense, difficulty, or in some cases, impossibility of getting insurance coverage.  On the other hand, healthy individuals aren’t pleased with year-over-year premium increases and wondering where all the extra dollars, and in their minds, “profit” is going. As a consumer, this is a simple but obvious indicator that your view of the Affordable Care Act most likely depends on what lenses through which you view the healthcare ecosystem. 

Where you sit within the ecosystem drives the configuration you need to deploy. The very well-being of your organization, or in some cases, its survival is at risk. At the upcoming MPO Summit in Park City, Utah, Sept. 29 and 30, Mike Drues, a world renowned quality and regulatory expert, and I, will take our combined 60-plus years of experience and unpack a case study of a very large medical device company that was simply destroyed and had to file for bankruptcy due to the poor, incorrect approach and configuration of their value chain tied to their supply base.  This organization, committed a number of value chain mistakes on its way to failure. Either as a consumer or provider, the case study will touch every member in attendance. This case study likely will stun attendees—as it did Mike and me—as we witnessed this company’s many poor decisions as they were unfolding. 

Configuring a value chain requires a comprehensive set of “inter” value chain lenses and experience.  Organizations fail when they wear lenses that seek only to maximize their piece, or what I describe as “intra” value chain components.  The mentality of “I win, and you lose” will prove to be nothing more than a boomerang that circles back and wreaks havoc on the thrower of that boomerang as it did to this failed device company.  A series of silo-based (or intra value chain) subset decisions, led to this company’s peril.  

Some of the mistakes made by this organization not only were poor decisions across the value chain, company to company, but also within its very own organization deploying intra-departmental and not inter-departmental thinking.  Mike and I will describe the failed use of a one-dimensional electronic portal to consolidate the supply base that ultimately replaced (fired) good suppliers in favor of bad suppliers because decisions were made only on price. Additionally, detrimental decisions were made based on an individual’s bonus target goals, instead of the needs of the entire organization.  Additional misguided steps also will be unpacked such as when this organization errantly chose to offshore manufacturing and when they chose not to.  

This organization also slashed inventory in the wrong place and at the wrong time; made failed outsource vs. insource (make vs. buy) decisions; placed unqualified individuals in key decision-making roles; created contractual assault on their suppliers; had  total disregard for the importance of quality/regulatory in their supplier configuration process; and created an environment that was so unhealthy, the organization was forced to declare bankruptcy in order to help it hit the reset button to survive. Unfortunately, many of the company’s suppliers also declared bankruptcy or exited the ecosystem completely as they were unable to recover.

This case study was created as we witnessed this company disintegrating.  It is often stated that we learn more from our mistakes than our successes.  We believe that this company created a treasure trove of teachable moments on its way to failure.  Mike and I are doing this presentation in hopes of creating awareness that no company is too big or too small to be destroyed by failed value-chain configuration decisions associated with managing the supply base.  It is our sincere hope that attendees come away better prepared to help their organizations make correct, inter-value-chain configuration decisions, which drive their organizations and those around them toward excellence in the rapidly evolving health care ecosystem.  

The Affordable Care Act only created the burning platform for change. And those changes are many. How attendees’ organizations respond to that platform will make or break their organizations. We have all heard the saying “it takes a village.” MPO has been known for years as a key facilitator of the village. The MPO Summit 2015 is, once again, a gathering of the village and an investment in your organization’s future. Mike and I look forward to seeing you in the village as we all share our experiences with each other and enjoy the comradery the summit emanates.

How do you you view the ecosystem? How solid is your company’s value chain? Let’s discuss.

About the Blogger
Christopher Oleksy is founder and CEO of Oleksy Enterprises LLC, a collection of family-owned businesses. Oleksy has more than 30 years of experience in the medical device industry serving in a variety of executive management positions. He was recently president of Integra Biotechnical, a division of Providien LLC. Integra Biotechnical is a vertically integrated medical device contract manufacturing company providing a full range of supply chain services such as injection molding, assembly, packaging and sterilization management for Class II and Class III devices with facilities in Southern California and Tijuana, Mexico. Prior to that, Oleksy became president of ATEK Medical in 2005, which became one of INC. Magazine’s 2011 fastest growing healthcare companies and selected as one of West Michigan’s “Best and Brightest” companies for five consecutive years. ATEK Medical was acquired by Vention Medical in 2011. Prior to ATEK, Oleksy held several executive supply chain management positions within Medtronic Inc. and prior to that, Dow Corning Corporation. Oleksy is known as a supply chain pioneer and thought leader who has developed, authored, presented, and successfully implemented customer-focused value chain thinking for more than 30 years.